Royal Caribbean Cruises Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2021

Key Takeaways

  • Fleet restart: Royal Caribbean has resumed operations on nearly half of its ships and expects about 65% of its fleet in service by the end of Q3 and 80% by year-end, driving revenue ramp-up.
  • Booking momentum: Customer deposits rose to $2.5 billion, with 2022 bookings nearly back to 2019 levels, record Net Promoter Scores and strong onboard spend signaling robust demand.
  • Safety protocols: The company requires 100% of crew and ~92% of guests to be vaccinated, plus rigorous testing, resulting in isolated COVID cases and no significant onboard outbreaks.
  • Q2 financials: Reported an adjusted net loss of $1.3 billion ($5.06 per share) amid ongoing pandemic headwinds and reduced cruise capacity.
  • Cash-flow outlook: Management anticipates reaching cash-flow breakeven within roughly six months as fleet capacity and operating efficiencies continue to improve.
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Earnings Conference Call
Royal Caribbean Cruises Q2 2021
00:00 / 00:00

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Operator

Good morning. My name is Shelby, and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's business update and second quarter 2021 earnings call. All participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session you will need to press star one on your telephone. I would now like to introduce Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thank you, Shelby. Good morning, everyone, and thank you for joining us today for our business update and second quarter earnings call. Joining me are Richard Fain, our Chairman and Chief Executive Officer, Michael Bayley, President and CEO of Royal Caribbean International, and Michael McCarthy, our Vice President of Investor Relations. During this call, we will be referring to a few slides which have been posted on our investor website, www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements, which is on our first slide. During this call, we will be making comments that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Please note that we do not undertake to update the information in our filings as circumstances change.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined, and a reconciliation of all non-GAAP historical items can be found on our website. Richard will begin the call by providing a strategic overview and update on the business. I will follow with a recap of our second quarter results, and then I will provide an update on our latest actions and on the current booking environment. We will then open up the call for your questions. Richard?

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

Good morning, everyone. Thank you all for joining us on the call today. You all know it's been almost a year and a half since the onset of the pandemic, and it's certainly been a difficult time. We've been at a virtual standstill for this long period, and there's no business school that has a course in how to succeed in business with zero revenue. Fortunately, our people have responded well to these unprecedented challenges, and I'm very proud of the progress that they have produced. Today, we are reporting another painful set of financial results, but we're also reporting on the dramatic progress on the restarting of our operations and the continued strength in the demand environment for our leading brands. Most importantly, we have already restarted almost half of our capacity, and we're bringing more online as we speak.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

Our protocols appear to be working very well, which gives us and our guests comfort about the safety on board. Lastly, bookings are remarkably strong, especially for 2022. I would like to address these three issues in order. First, I want to talk about the process of restarting, second, our operational protocols and their impact, and then lastly, come back to our booking outlook. Now, starting with the process of resuming operations, it seems like only yesterday that people were asking me if I thought cruising would restart by December. Suddenly, we have half of our ships sailing on revenue cruises. We know that it's going to take us a while to return to full normalcy, but while people are emerging from their isolation, it's clearly going to take them a while to feel totally comfortable.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

We believe that the best way to get them comfortable is to demonstrate just how well the process works. We call that the flywheel effect. Once we get the vast majority of our fleet back online and thousands of people sailing safely, it will make even more people feel comfortable doing the same thing. Once the flywheel starts spinning, it keeps spinning, and the machinery keeps getting more powerful. Now, some of you have asked why we were the first to restart in the States and how we've gotten our ships operating so quickly. The answer is simply that we started earlier, and we have the very best people in the business who have been very aggressive in implementing the new protocols.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

We started preparing before we had official word that we would be allowed to sail, but at a point where we thought the approval was inevitable. Our people have worked hard and diligently to make sure that our ships could be back in the water quickly. Also, thanks in large part to the vaccine rollout, society has been progressing faster towards normalcy, which has maximized the pace of our recovery. In this accelerated return to service, the health and safety of our passengers and crew remain a top priority. For every ship that we restart, we have committed to three pillars. First, ensuring our ship experiences are as safe or safer than the shoreside equivalents. Second, meeting and exceeding our exacting pre-pandemic expectations, especially in regard to guest experience, and three, doing so in a financially prudent manner.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

Now turning to the second item on my list, I think it's important to talk about the safety protocols related to COVID. As you all know, our goal from the beginning of the pandemic has been to make cruising not just as safe as comparable land vacations, but safer. We believed that the unique attributes of a cruise ship could allow us to control the environment to an unusual extent. We can ensure a level of vaccinations and testing that would be impossible for most other places to even contemplate. Specifically, we require 100% of the crew to be fully vaccinated, and we require the bulk of our guests to be fully vaccinated and well. The only exceptions are children under 12 and, in Florida, a minor number of people who choose not to get vaccinated.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

Excluding Singapore, which is a special case, an average of 92% of the people on board our ships in July were fully vaccinated, and this number is likely to rise going forward. The idea is to limit the spread of COVID-19 aboard our ships. We all know it's impossible to eliminate cases on board a ship totally, just as it's impossible to eliminate cases on land. The steps that we are taking are designed to prevent the isolated cases from becoming an outbreak, and it seems to be working. We have had people test positive, but because almost everyone around them is vaccinated, they've remained isolated cases. That's the goal, rare individual cases and no significant spread. Repeat this with a few hundred thousand or million cruisers, and that creates the trust that will drive our resurgence.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

Now, the Delta variant is problematic for everyone, but even this looks manageable by our extensive protocols. It's too early to draw definitive conclusions, but the vaccines are the ultimate weapon, and they work. Our experience shows that while there are breakthrough cases aboard, the vaccines help keep them contained. In fact, and I thought this was quite unusual, in most of our positive cases, even the cabinmate of the infected individual has tested negative. In light of the Delta variant and other variants, we have recently strengthened our protocols further, even more testing and even more people required to be vaccinated than we had in June and July. We have gone from cruises being a source of concern to cruises being an exemplar for how to deal with COVID-19. I'm thrilled that we're making this dream a reality.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

That brings us to how our customers are responding, and fortunately, that outlook is good. Our guests are eager to cruise again. We had hoped that there would be pent-up demand for cruises, but even we were surprised by the level that we're seeing. We are also encouraged by the improvements we're seeing more broadly across the travel industry. Cruise consideration remains high among active cruisers, and it's steadily increasing among non-cruisers. It is clear people are eager to travel to take a vacation, and we are ready to make their vacation dreams come true. Jason's going to speak more about our booking trends in a moment. We all know it's going to take some time for the situation to settle. There's still a lot of confusion in the marketplace, and that definitely hurts the next few months or so.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

In addition, people usually book their cruise vacations well in advance, and it will take some time for us to catch up with the bookings that we didn't arrange or we didn't get up until now. If we only obsess about the present, we will fail to prepare for the future. We must keep our eye firmly on that future that we can see is coming. We need to prepare ourselves for it, so we are focusing our thoughts, our efforts, and our plans on that future. While the third and fourth quarter this year will continue to be painful, it's booking generally in line with our return to service and occupancy ramp-up expectations. Due mainly to the timing of the ramp-up to service and the abnormal booking window, we don't expect 2022 to be a normal year.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

We are seeing rapid and steady progress towards normalcy starting in the spring and summer of next year. One important additional point is that we are not only in the business of delivering the best vacations possible, but also doing it sustainably. The company's commitment to corporate stewardship remained a priority even during our return to service. Despite pandemic headwinds, the company has made tremendous progress across environmental, social, and governance focus areas. Some of the key achievements would include a 35% reduction in our greenhouse gas emissions from our 2005 baseline. We removed 60% of single-use plastics from our supply chain. 60% of our ships are equipped with emissions purification system that remove 98% of sulfur oxides, and our newest ships are equipped with selective catalytic reduction, which reduces NOx emissions. We've reduced waste to landfill by 85% from our 2007 baseline.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

We have also completed the introduction of over 2,000 certified tours and three assessments by the Global Sustainable Tourism Council. One interesting point is that our wind farm that spans 20,000 acres in northern Kansas has 62 turbines with a total power generation capability of 200MW. It's now been operational for more than 1 year. It will annually generate 760,000 megawatt hours of carbon-free energy. That's saving some 500,000 tons of carbon. To put it in perspective, it's the equivalent to the energy use of about 60,000 homes. These are just a few of the many initiatives underway at the company, and I've only focused here on the area of the environment. Our press release covered other initiatives. In accordance with our mantra of continuous improvement, we will continue to elevate and introduce new initiatives to improve all of our ESG efforts across the board.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

The last 16 months have caused much pain and much suffering. The tide is clearly turning. I'd like to thank our board of directors for their support and dedication. I also want to thank our partner organizations and communities for staying the course and preparing for this future. Most of all, I want to thank the men and women of the Royal Caribbean Group for their tireless efforts under the most challenging of circumstances. Their dedication to seeing us through this black swan event in the best way possible is nothing short of extraordinary. I look forward to sunnier days ahead. With that, I'll turn it back to you, Jason.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thank you, Richard. Before I start, like Richard, I also want to thank our teams across the whole enterprise for their tireless dedication to rapidly bringing our fleet back into service in a safe, healthy, and financially responsible manner. This has been accomplished through impressive interdepartmental collaboration, many sleepless nights, and for that, we are really forever grateful. I will now turn to discuss our performance for the second quarter. This morning, we reported an adjusted net loss of $1.3 billion, or a loss of $5.06 per share for the second quarter of 2021. While these losses are incredibly painful, the second quarter was a turning point for the company on multiple fronts. First, we welcomed an additional 10 ships back into service after 15 months of minimal cruise activity.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Second, we took financing actions to reduce our negative carry and began our journey back to an unencumbered and pre-COVID balance sheet. Third, we saw a significant increase in booking activities that resulted in a large increase in our customer deposits. As we shared this morning, our customer deposit balance as of June 30th was $2.4 billion, which was about 30% higher than the balance at the end of the first quarter. As of today, our customer deposit balance is $2.5 billion. At this point, a little over 35% of our customer deposit balance is associated with FCCs, compared to about 45% at the time of our last call, signaling continued strong demand. On the liquidity front, we closed the second quarter with $5 billion in liquidity.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

As you all know, we pride ourselves on having industry-leading brands with a world-class and highly innovative fleet and a history of strong financial discipline and performance. These assets and attributes have been instrumental in helping us raise more than $13 billion in new capital since March of last year. During the second quarter, we continued our efforts to manage and improve our balance sheet, and to that end, we successfully issued $650 million of senior unsecured notes at 4.25% and used those proceeds to redeem 7.25% senior secured notes in full. This will generate approximately $17 million of cash savings annually, beginning in 2022. We are delighted with the current momentum and the restart of our operations in the United States and around the globe.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

The environment remains fluid, for this reason, we are not providing a cash burn estimate or the related offsets generated by revenue and new customer deposits. I will highlight that the burn rate for the ships that are kept in layup is expected to be consistent with our previous expectations. As it pertains to our debt maturities, our scheduled debt maturities for the remainder of this year and 2022 are $21 million and $2.2 billion. I will now update you on capacity and the booking environment. After more than a full year of painful financial losses, a never-ending rollercoaster of ups and downs regarding the timing of our return to service, multiple liquidity actions, and very little cruise capacity, we are now finally bringing our fleet back into service and are already welcoming thousands of guests back on board each week.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

In fact, we are thrilled to have welcomed more than 136,000 guests on board our five brands during the first half of the year. The pace at which our teams have been able to bring ships out of layup and ready them for guests is nothing short of incredible. It is amazing to think that at the end of April, we only had four ships delivering incredible vacations across our five brands. As we sit today, there are guests sailing on 29 of our 60 ships in the Caribbean, Europe, Asia, Alaska, Iceland, and the Galapagos. We are also in the process of ramping up seven more ships to begin welcoming guests this month. As a result, we anticipate having about 65% of our fleet in service at the end of the third quarter and approximately 80% of the fleet back in operation by the end of the year.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

When considering our plans to ramp up capacity, the one area we continue to watch is the Asia-Pacific region, and for purposes of our return to service planning, we have been cautious. Now I'll give you an update on bookings. Bookings are still below 2019 levels, due in part to our reduced capacity for 2021 and the fact that many sailings were announced very close in with little time to build business. However, the gap narrowed further during the second quarter, and we received about 50% more bookings in Q2 than during the previous three months, with trends improving one month to the next. By June, we were receiving about 90% more bookings each week when compared to Q1, with bookings for 2022 practically back to 2019 levels. As it relates to the Delta variant, we have mainly seen small variations with closer-in bookings in markets with high case counts.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

However, July was our second-highest booking month of the year, and bookings for 2022 are strong. We are particularly encouraged by the continued strong demand for the important spring and summer months. The health and safety of our guests and crew is our number one priority, and as such, our start-up strategy incorporates low initial occupancies to give the crew the opportunity to seamlessly implement the new protocols and facilitate amazing vacations in this new and constantly changing environment. After each ship gets a few voyages under their belt, our plan is for our load factors to steadily increase from one month to the next. This is evident in our fleet, where several of our ships are now sailing with more than 50% load factors. Overall, the booking activity for 2021 sailings is consistent with our expected capacity and occupancy ramp-up at prices that are higher than 2019.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

We are also seeing record Net Promoter Scores, as well as record onboard revenue for the ships that have resumed service. This is very encouraging, as we are not only seeing pent-up demand for cruises, but we are also seeing pent-up demand for our onboard revenue experiences. Guests are really enjoying our shore excursions, casinos, spas, and restaurants after spending a year in isolation. We are also seeing an increased demand for our Wi-Fi services as more and more consumers have flexibility to take vacations and work remotely. Looking further forward, we continue to be impressed by the demand and pricing we are seeing for 2022 sailings.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

It is still a bit early in the booking window to provide too much color for next year, but I will share that our booked load factors continue to be well within historical ranges at prices that are up nicely versus 2019, including the dilutive impact of FCCs. While we are still in the early stages of the planning cycle for 2022, we do expect lower-than-average load factors for the first quarter, as several ships will still be in ramp-up mode after having recently returned to service. That being said, the first quarter is booked within historical ranges. In addition, load factors are at the higher end of historical ranges for the back half of the year, with Q3 currently in a particularly strong position. Underpinning this is a strong customer deposit profile for 2022. Customer deposits for 2022 are significantly higher than same time in 2019.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

This demand and booking profile is quite encouraging, considering that we have only been spending about a quarter of our typical sales and marketing spend. We are also optimistic that a number of larger macro indicators will provide further tailwinds to our future demand: increased vaccination rates around the globe, sharp increases in consumer confidence, and significant increases in personal saving rate versus the same time two years ago. I will close by saying that we are thrilled for the flywheel to be spinning at such an accelerated pace. We have been dreaming of this moment for more than 16 months, and it's finally here. We feel very optimistic about our future and are thrilled to see more and more guests in the United States and around the globe enjoy incredible vacations onboard our ships.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

With that, I will ask Shelby to open up the call for a question-and-answer session.

Operator

As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Your first question is from Steven Wieczynski of Stifel.

Steven Wieczynski
Steven Wieczynski
Analyst at Stifel

Yeah. Hey, guys. Well, excuse me. Good morning.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Good morning.

Steven Wieczynski
Steven Wieczynski
Analyst at Stifel

I'm not sure if this is going to make sense or not. Is there any way you can help us think about the ship economics today? I guess what I'm trying to understand is, given the higher cost that you guys are taking on, whether that's COVID protocols or lower capacity levels, et cetera, if you looked at a ship today and the ships that have been sailing for, let's say, the last four or five weeks, are these itineraries still losing money, or have you gotten to the point where some of these ships are actually cash flow or EBITDA breakeven?

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Hey, Steve. Good morning. What we're finding is really after a few weeks of getting these ships up and running, we're getting to occupancy levels in which the ships are accretive to our overall cash position. As was commented in Richard's remarks, we're really focused on those three pillars of making sure that our guests and crew are safe, making sure that the guest experience is exceptional, and you can hear that in very high net promoter scores. The third is that we're being very responsible on a financial standpoint as we bring up the ships. For us, really a few weeks after we're up and running, we're seeing it being accretive to us on a cash position.

Steven Wieczynski
Steven Wieczynski
Analyst at Stifel

Okay. Understood. Then let me ask this maybe a little bit of a different way. If you stay on the path that you are right now, and let's say the variant stuff doesn't take you guys down at all, then you get, let's say, 80% of your capacity back in service by the end of the year. Is there any way you can help us think about when the overall company might be able to get to that very important breakeven level, whether that's in terms of EBITDA or free cash flow? Just because I think investors continue to be concerned about potential raises down the road if something doesn't go right.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Sure. Very fair question. Of course, it is very early. Based off of what we're seeing, the ramp-up of our business, I think we see ourselves being cash flow positive in about six months as we ramp up the business. Keep in mind, when we say 80% of the fleet is back up and running at the end of the year, some of those ships are just going to be returning into service, and there's a ramp-up period for those. More or less, we see ourselves about six months out from that breakeven point on a cash flow standpoint.

Steven Wieczynski
Steven Wieczynski
Analyst at Stifel

Okay, that's perfect. Thanks, guys. Appreciate it.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thanks, Steve.

Operator

Your next question is from Robin Farley of UBS.

Robin Farley
Robin Farley
Analyst at UBS

Thanks. I had a similar question about the cash flow breakeven you mentioned after a few weeks. If we put a number on it, does that mean that you're finding cash flow breakeven in the 40% or 45% kind of occupancy level? Is that how we should think about where the occupancy level needs to be? My other question, and I hate to be so short-term focused, but I know that investors are very focused on the comment and the release about the near term being impacted by Delta. I know you quantified that July was still the second highest month of the year. I guess that means down sequentially a little bit from June, which June was 90% better than Q1.

Robin Farley
Robin Farley
Analyst at UBS

I guess I don't know if you feel that the impact of that has stabilized at that level, that as you're moving into August here, that August would be similar to July, I guess directionally, maybe just to give investors a little bit of comfort about the direction that things are headed? Thanks.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Okay. I'll jump on the first one, and I think Michael will hop on just in terms of thoughts on the variant. Robin, as we've been saying for some time, and I think you hit the midpoint of that is, a ship is accretive to us around that 35%-50% mark. Obviously, the newer, larger ships are closer to the 35%, and older, smaller ships are closer to that 50%. That 40%-45% occupancy range is where also considering our return to service costs and so forth, is where we see those ships being accretive to us. I'll pass it over to Michael to talk a little bit about the Delta variant.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Robin, in terms of Delta from the perspective of the customer and the booking environment, I think I would say in the last two weeks, we've seen very positive growth in demand as we move through the spring with vaccinations, and as we announce return to service, and as customers saw our ships return, we really did enter into a very positive booking environment. I think over the last two weeks, the positive environment continues, but it hasn't been at such a trajectory as it was. It's really short-term. When you look into 2022, we see no material impact at all on the increases in bookings for 2022. I think customers, consumers now see this for what it is. It's a blip and a bump. I think we feel encouraged by the protocols that we've got in place, as Richard mentioned in his opening comments.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

We've been very encouraged to see that when we do have a positive COVID case on board our ships, we very quickly contact trace, test, and what we find is that very often you may have a COVID positive, either from a vaccinated or unvaccinated guest, and they'll be in the very same room with somebody who's vaccinated, and they test negative. The vaccines are really working. I think vaccination population, so to speak, as Richard mentioned, I think in the month of July, our ship sailed with around 92% of the entire community vaccinated. In the month of July, we were still accepting kids from the age of 12 to 16 who weren't vaccinated. Starting on August the 1st, that number's dropped down because our policy requires you to be vaccinated 12 and up.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

I think, the good news is, if there is good news with the Delta variant, is that people are becoming far more accustomed to this. If you've got a highly vaccinated population, there's minimal impact, and I think increasingly, as our ships sail, as we encounter this, we communicate, we're very transparent. The feedback we get from our customers is recognition and relief that this is very contained and something that's going to pass.

Robin Farley
Robin Farley
Analyst at UBS

Great. That's all super helpful. Thank you. Just one final thing, then I will totally hop off. I don't know if you have any comments to share about, we hear about steel prices moving up so significantly, and just had a question about your ship orders, your new build orders. I assume that the price is locked in so that the higher steel price would be borne by the shipyard, not by Royal. Would that be an opportunity to maybe renegotiate and extend some delivery dates? I'm just trying to think about how these higher steel prices may be impacting your order book. Then I'm totally off. Thank you.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Hey, Robin. As it relates to on the steel side, it really does not have an impact on our order book or on our costs. There is inflation in there. Typically, also, just so you know, when we order ships, typically the yards also lock in their purchase of steel and fix those prices. There's not really an impact there. Quite frankly, we're excited about the new capacity that's coming on. When you look at the cabin configuration, the opportunity for onboard revenue, the fuel efficiencies, the positive impact on the environment that these ships are able to bring to us. We're looking forward to get those ships online. The reality of it is, as the investment community knows, they're going to be 8 to 10 months delayed from when we had originally expected to take them on.

Robin Farley
Robin Farley
Analyst at UBS

Okay. Thank you.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thanks, Robin.

Operator

Your next question is from Greg Badishkanian of Wolfe Research.

Fred Wightman
Fred Wightman
Analyst at Wolfe Research

Hey, guys. Good morning. It's Fred Wightman on for Greg. Richard, in your prepared remarks, you talked about 2022 still not being a normal year but continuing on that recovery towards more normalcy in the spring and the summer. Can you just sort of touch on how you guys see home market travel relative to international travel evolving into next year? Do you think we could see North American customers make up a big chunk of sort of European departures? What are the puts and takes there?

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

I think we were cautious not to try and make too many predictions about the way this goes. Clearly today, countries are doing more local. You see a tremendous growth, actually, it's surprising, in domestic travel and particularly domestic air and other domestic travel as opposed to international travel. The other thing that we've seen in this is how quickly it all changes. If you just look at this, we've gone from people wondering whether we're going to be back in service at all this year to half our fleet back in a matter of weeks. It's kind of happening so quickly. I think we see the same sort of thing. There's tremendous restrictions on international travel today. At the same time that the U.S. decided to extend its, you saw the U.K. releasing restrictions, and you're seeing in Europe.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

I think the vaccine is the game changer here, and it is working. As it becomes more and more people are getting it, and you've seen a bit of an upturn already in the unvaccinated getting vaccinated. You're also seeing it working in Europe. Just a few weeks ago, Europe was way behind the curve on vaccinations. They've ramped up to now they're equal or in many cases ahead of the U.S. Australia and New Zealand, which initially focused, and in fact much of Asia, which initially focused not on vaccines, but on isolation and having domestic travel being the key, have shifted. While they're low on vaccinations compared to the U.S. and Europe, they're rapidly fixing that.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

I think it's an uncertain period, but I think what we would expect is for months now, we will see restrictions and people staying closer to home. I think there is a yearning to get out there. Once the vaccines get out there, once they begin more widely distributed, you'll see more international travel. That takes a while, and international travel also tends to book further in advance. You would expect international travel for the first quarter, a lot of that to be arranged already. The fact that we haven't been booking it means that the first quarter is going to be weak on that count. I think as we're looking further in the year, we're seeing people really expect things to be back to normal, and we're seeing international travel back to normal.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

Once we get into the spring and summer, we're really very encouraged by what we're envisioning.

Fred Wightman
Fred Wightman
Analyst at Wolfe Research

That makes sense. There was also a comment made about cruise consideration picking up among non-cruisers. Could you maybe put some numbers around that and just give some thoughts on how you see new-to-cruise returning?

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Hi, Fred. It's Michael. Just to add a comment to Richard's response on international travel. I think one thing that's just important to note is that we've always had a significant international sales and marketing presence in pretty much all of the key markets globally. We have that benefit, and we've always utilized that strength in normal times and in challenging times as well. Whether it's in Australia, or Asia-Pacific, or throughout Europe, we've always had significant presence, and we've always been able to drive significant demand from those markets, and particularly drive-to markets, which has been very helpful. Sorry, what was the second question? I lost my train of thought then.

Fred Wightman
Fred Wightman
Analyst at Wolfe Research

Just new-to-cruise.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

I think when we look at all of our stats, I'm not going to give you the numbers because honestly, I can't recall them. We've been tracking since the beginning of this, the consumer sentiments across different segments and categories. What you see, which is very logical is, as the pandemic has raged and as vaccines have become prevalent, you see consumer confidence increase, you see travel hesitancy decrease, you see cruise hesitancy decrease. We've seen improvements across all of these different segments, and particularly for new to cruise. If you look at new to cruise view of cruising today versus when we were in the depth of the pandemic, it's remarkably improved, and it continues its upward journey.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

We do think, and to Richard's point and Jason's point about the flywheel, the more we have our ships in operation, the more customers that sail with us and have an amazing vacation, and the more that we operate, then we believe that we'll see new to cruise come back fairly quickly.

Fred Wightman
Fred Wightman
Analyst at Wolfe Research

Great. Thank you.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

You're welcome.

Operator

Your next question is from Jaime Katz of Morningstar.

Jaime Katz
Jaime Katz
Analyst at Morningstar

Hi. Good morning. Thanks for taking my questions. I'm hoping you'll talk a little bit about what your expectations for marketing and selling expenses are for the rest of the year. I'm wondering mostly if we think those should remain depressed given the pent-up demand that still exists out there, or if there is a specific positive ROI opportunity to entice more new to cruise back to the market?

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Great question, Jaime. Our marketing teams have really been more watching the timing of when we want to employ our sales and marketing activities. It's less about the overall amount. Our expectation is that we will ramp up our sales and marketing engine to harvest as much quality demand as we possibly can because we think that there's opportunity for it to be even stronger. What I would say is overall, you should expect that we're going to spend closer back to the levels that we were before on the sales and marketing side when the timing is right. What we are seeing as you can see here is, demand for the future periods is exceptionally strong, and so our teams are always very thoughtful about that.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

We are generating demand not just for 2022, we're also generating demand for 2023, and even a little bit for 2024 for brands like Silversea.

Jaime Katz
Jaime Katz
Analyst at Morningstar

Okay.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Jaime-

Jaime Katz
Jaime Katz
Analyst at Morningstar

Go ahead. Sorry.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Jaime, sorry, let me just jump in for a second. I think we're feeling pretty optimistic about the opportunity that's in front of us. When we think about our marketing investment, marketing activity, and spend over the past several months all the way through this year, we've reduced it incredibly. Yet the demand that we've seen coming through the door has been really strong. We've seen demand almost at the same level as 2019, and it continues, and yet ironically, our investment has been remarkably low. We are thinking that as we move through into September, and of course, we're mindful of the Delta variant, but when we really do go to market, we think that there's going to be significant opportunity for us. We're quite thoughtful about this. One of the things that we're very thoughtful about, of course, is pricing.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

We're already seeing that not only are people spending up, but we're seeing that in our onboard spend. I think Jason commented earlier that we've been incredibly encouraged by the spending on board our ships that we've already started operating. In fact, the numbers have been very impressive. We think that there's an opportunity coming, and I think when we really go to market in a positive way as we move into the fourth quarter, we're encouraged by what we think is going to happen in terms of demand.

Jaime Katz
Jaime Katz
Analyst at Morningstar

Okay. There was some commentary on the booking curve. It actually sounded to me like directionally it might be lengthening, despite the fact that it's probably still shorter than it was pre-pandemic. Is there any color you can add on that? Thank you.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

I think that you're probably referring to my comment. That also actually ties in a little to your previous question. I think actually the booking curve has shortened because we didn't have the wave period this year that would have given us a base for 2022 and even into 2023. I think if anything, it's actually gotten shorter because of the uncertainty and because of the fact that this is only ramping up very quickly. Our objective is to get it back. The longer booking curve is helpful to us. It's also helpful in our yield management models. We want that to happen. Yes, we will be investing in marketing. That's one of the things marketing does do. Even though demand has been pretty good, we're never satisfied with demand.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

If we can ramp up more demand, and particularly on short notice. We will have a period where we have to fill in the short term as well as generate the long term. The other thing that is relevant, you asked about first-time cruisers, or rather people who haven't cruised before. There's no question that is a real opportunity for us that we want to be exploiting going forward.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Just to add to it, while, as Richard commented on average, the booking window has contracted a little bit as, of course, we're launching sailings and we're selling very short in. One thing that's very clear, which of course is helping extend the booking window, is demand for the peak summer period of time is really exceptional. It's clear that customers want to make sure as they've kind of compromised this summer, they certainly compromised last summer. Especially for family holidays, multi-generational travel, you're certainly seeing customers lock themselves in for that period.

Jaime Katz
Jaime Katz
Analyst at Morningstar

Thank you. That's really helpful.

Operator

Your next question is from Sharon Zackfia of William Blair.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

Hi, good morning. I wanted to follow up on the pricing dynamic for onboard activities. Have you started to take pricing on some of those excursions or the bar or spa, and how are you seeing customer elasticity of demand there?

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Just overall, our pricing for many things on board is dynamic. We're also being thoughtful about it as our guests are returning. What you're really seeing is it's not just about price, it's really just the volume or the willingness for them to take more money out of their wallets to enhance their overall experience. It's not just one thing. We're really seeing it across all of our onboard activities. As well as on the pre-cruise side, as they're planning their vacation experiences, they're being really thoughtful to make sure that it's very well-baked and meets their very high expectations in which we're delivering for them. I think if you look over what we saw last quarter, look at what we're seeing here in the month of July, the APD we're seeing are almost double what we have seen in previous periods of time.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

That is not only a record, but I think it's a indicator of the level of wealth and demand and thirst for experiences.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

That's really helpful, Jason. Are you seeing that skewed disproportionally the U.S. passengers? Excuse me. Are you seeing that pretty globally across nationalities?

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Hi. We're seeing it globally. I think it's occurring all over the world. Certainly, with our American guests, you can really see it. It's across all of our customers.

Sharon Zackfia
Sharon Zackfia
Analyst at William Blair

Thank you.

Operator

Your next question is from Ben Chaiken of Credit Suisse.

Ben Chaiken
Ben Chaiken
Analyst at Credit Suisse

Hey, how's it going? You gave some color on capacity, then Jason, you alluded to it on Steven's question, I believe. For 4Q, I guess since you gave some color around 80% of the fleet being back, can you just maybe high level talk about how you're thinking about total APCD? Again, I know 80% of capacity, I think you meant that in ships, so like units. Any help on the APCD side?

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Well, we can kind of work a little bit offline in terms of the APCD side. It's a little bit fluid because in some cases, we have test sailings and so forth, so it's not necessarily a meaningful metric or measure to put out there. We're 65% of our capacity we expect to have up in the third quarter. It's going to ramp itself up to 80% is online. Many of those ships are just beginning their flywheel and ramping themselves up, and that additional 15 percentage points that you're going to see in the fourth quarter, similarly, they're ramping themselves up. It's a little bit why when we talk about 2022 not being a normal year is because ships are ramping themselves up, especially in the first quarter.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

The fleet is kind of back up and running, and we expect to be generally normal here as we kind of get - [audio distortion] to keep in mind is our collections.

Ben Chaiken
Ben Chaiken
Analyst at Credit Suisse

Okay, cool. I appreciate it, thanks.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thanks, Ben.

Operator

Your next question is from Stephen Grambling of Goldman Sachs.

Stephen Grambling
Stephen Grambling
Analyst at Goldman Sachs

Hi, thanks. I guess just a follow-up on one of your comments about the customer deposits. That obviously has been coming back quickly. Should we anticipate that should be linear, or is there any kind of seasonality to think through in the back half of this year and early next year?

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Hey, Stephen. There's always a level of seasonality, just obviously as you're taking on bookings for more the peak periods of time, there's a rise on the customer deposit side of things. I think there's a level of that. For here, for the most part, what we're just seeing is a very steady, but I think quantum step change each month as we're starting to sell cruises for the future, and a lot of it's just tied to the announcements. Like the announcement yesterday from Royal, that starts really the flywheel spinning for those ships, and I would tie it more towards those announcements and that ramp-up beginning based off of that. I mean, when you think about it, 80% of our bookings are new bookings. Right? A little bit less than 20% are FCCs or lift and shifts.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

We see each time we announce a ship coming online and the timing of that's resulting in our customer deposit balance rising.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Hi, Stephen, it's Michael. I'd just like to add to Jason's comment. It's kind of a big deal when we do make the announcements on return to service and confirm ships deployment, sailing dates, and what have you. We literally have hundreds of thousands, if not millions of customers who are simply waiting for the confirmation. When we last announced our return to service confirmation, I think it was at the beginning of June. That's when we saw a really significant increase in bookings. I think, the announcement that we made yesterday should also receive a significant amount of interest. We get a lot of questions from our customers. If you go on social media, people are waiting. They're waiting for the confirmation, and yesterday we gave confirmation on the remaining fleet. We feel quite optimistic about that.

Stephen Grambling
Stephen Grambling
Analyst at Goldman Sachs

That's great color. Maybe one other follow-up, and I may have missed this in some of your intro remarks, but how has your expectations around breakeven and occupancy levels changed for the ships that have gone out? It looks like the pricing, especially since you've only had a couple of weeks to get some of these ships up and running, is pretty impressive. Has your thought around the kind of ship level breakeven evolved? Thanks.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Well, certainly our breakeven level has gotten a little bit better because, as you said, Stephen, whether it's 2022 or 2021 or sailing next week, the APDs are higher. The higher APDs obviously will impact the load factor that's necessary in order for them to break even on a cash position. Again, I think it just kind of shows overall the encouragement that what you see in terms of the guests that are sailing with us, the number of guests that are sailing with us. It is very in line with how we're looking to ramp up the ships, albeit at higher prices than we had anticipated.

Stephen Grambling
Stephen Grambling
Analyst at Goldman Sachs

Thanks. Good luck with getting the rest of the ships out.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thanks, Stephen.

Operator

Your next question is from Assia Georgieva of Infinity Research.

Assia Georgieva
CEO at Infinity Research

Good morning, guys. This might be more of a question for Michael. I wonder with the difference in loosening travel restrictions in Europe versus North America, have you seen more of a mixed change towards European passengers versus what would be domestic passengers? If we can parse it a little bit further down, with our home in the Sunshine State and some of the legal issues there, are there fewer Floridians that are traveling than you would normally expect?

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

I think all of our ships and brands face a fairly dynamic changing environment where rules, regulations, legislation, as we know, has shifted and changed. What we've seen in terms of demand is really reflected in the commentary that we've already provided, which is with significantly less marketing investment, the demand has been surprisingly strong. There's puts and takes throughout all of that landscape, but at a higher level, demand is strong. I think for products that are closer to home, demand is even stronger. Different countries within Europe have gone through their own journey with COVID, so it's a more complicated environment in Europe, ironically, than it is in the United States, even though in the United States we have to deal with various issues associated with legislation, et cetera.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

I'm not sure if I'm really answering the question clearly to you, but I think as we move through this, what we've been surprised with is the strength of the demand, I think that's reflected in the numbers that we have. I'm not sure if I've answered the question clearly for you, but it's a complex landscape. The bigger picture view of this is very positive.

Assia Georgieva
CEO at Infinity Research

Well, because it is pretty complicated. As you mentioned, in Europe, first of all, different jurisdictions, different countries have been changing, loosening restrictions, adding on, not lockdowns, but additional testing, vaccination requirements. It seems that it's very fluid all the time, and I wonder whether for Q1, given that it's not going to be a great quarter, some of that might be because of difficulty for Europeans getting to Florida, let's say, or to any sort of Caribbean embarkation ports that might be affecting some of the expectations that you have for that quarter.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

No. Assia, I'll just jump in there. There's lots of things that I think affect our point of view on the first quarter. First is just the timeframe and booking window. Second is just the ramp-up of our ships, in terms of expectations, going from their starting position and ramping themselves up. I think some of it is a little bit kind of a cautious outlook when we kind of consider the Asia Pac side, especially the Australia-New Zealand side, which that's kind of the period of time which our ships typically operate. I think just a more in general demand in our key markets like North America, and Europe, and U.K., and so forth. I'm sure all that will play a little bit into what you're saying, but it's not, I think, right now at the heart of our commentary for the first quarter.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Yeah, I think also just [crosstalk]

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

Just jumping on that as well. Traditionally our Q1 bookings tend to be closer in home market activity anyway. Q1 has never been a high international travel market for any of our brands or products. Typically, as you move into this peak summer, that's when you really see a lot of people traveling across continents and what have you. It's less so during the Q1 period on a traditional basis anyway.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Yeah. Go ahead.

Assia Georgieva
CEO at Infinity Research

Thank you so much, Michael and Jason. Again, this has been very difficult, not only from a virus perspective, but also from a regulatory perspective. I appreciate the commentary.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Thanks, Assia.

Michael Bayley
Michael Bayley
President and CEO at Royal Caribbean International

It has, yeah. Thank you.

Assia Georgieva
CEO at Infinity Research

Thank you.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Shelby, we have time for one more question.

Operator

Your final question is from Vince Ciepiel of Cleveland Research.

Vince Ciepiel
Vince Ciepiel
Analyst at Cleveland Research

Hi. Thanks for taking my question. I wanted to big picture thinking about the longer-term opportunity for the business, despite maybe some near-term noise and restart costs. On the other side of all this, it sounds like pricing's really good. I'm curious how you think about the margin opportunity, any learnings coming through COVID to make you more efficient. Then I think there's been some changes within the fleet that should improve efficiency as well. How are you thinking about that opportunity?

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

I think I'm very pleased with the question because that's really where the opportunity lies. We tend to be very focused on the short term, and that's only appropriate. In the last year and a half, it's been maniacally focused on the short term, on getting the ships back into service, on protocols, on regulation, et cetera. I think your question is very focused on the same sort of thing we've begun to focus on as we come back. There are a series of things. The most important is to reestablish the credibility of cruising in the consumer's mind. I think that you are seeing is happening nicely, and we're very optimistic about the direction that that will go, both for experienced cruisers and for new cruisers. We need to develop both of those markets.

Richard Fain
Richard Fain
Chairman and CEO at Royal Caribbean Group

We're also seeing, as we normally do, a tremendous interest in the new ships that we have coming, and the revitalization of ships that we've had. We're seeing that in our forward bookings. We're seeing that in our ramping up. Many of the changes that we've made have enhanced our onboard revenue capabilities, et cetera. Lastly, there's the operating efficiency. We spent a lot of time during this period focusing on ways that we can operate more efficiently, better use of technology, better cost control capabilities, better ability to generate onboard revenue, and efficiencies from new technology. All of those things are very much working in our favor, and we think as we're looking forward, those will put us back on the trajectory that we were prior to the pandemic.

Jason Liberty
Jason Liberty
CFO at Royal Caribbean Group

Great. Okay. Thanks, Vince. Thank you for your assistance today, Shelby, with the call today, and we thank you all for your participation and ongoing interest in the company. Michael will be available all day for any follow-ups you might have, and from all of us, we wish you a very great day.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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